Magna International, Inc. (MGA)

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Magna International Inc. (MGA)

Q1 2010 Earnings Call

May 6, 2010 7:30 a.m. ET

Executives

Don Walker - Co-Chief Executive Officer

Siegfried Wolf - Co-CEO

Vince Galifi - EVP and CFO

Louis Tonelli - VP, IR

Analysts

John Murphy - Bank of America

Chris Ceraso - Credit Suisse

Rich Kwas - Wells Fargo Securities

Himanshu Patel - JPMorgan

Rod Lache - Deutsche Bank

Itay Michaeli - Citigroup

David Tyerman - Genuity Capital Markets

Michael Willemse - CIBC

Presentation

Operator

Welcome to the Magna International first quarter results 2010 conference call. (Operator Instructions)

I would now like to turn the conference over to Mr. Don Walker, Co-Chief Executive Officer.

Don Walker

Thank you. Good morning and welcome to our conference call. Joining me today are Siegfried Wolf, Co-CEO; Vince Galifi, Executive Vice President and Chief Financial Officer; and Louis Tonelli, Vice President, Investor Relations.

We issued two press releases earlier this morning. The first release covers our first quarter results. The second release announced an important proposed transaction that shareholders have been asked to consider and ultimately vote on. You'll find the press releases, today's conference call webcast and the slide presentation to go on with the call on the Investor Relations section of our website at www.magna.com. We'll post our remarks relating to the proposed transaction on our website later.

Today we'll comment first on the quarter and then elaborate on the proposed transaction. We'll then open the call to answer your questions.

Before we get started, just a reminder the discussion today may contain forward-looking statements within the meanings of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to both today's press releases for a complete description of our Safe Harbor disclaimer.

We'll keep our quarter-related comments brief today, as we want to discuss the proposed transaction and since we're making presentation later this morning at our Annual Meeting.

We're pleased with the first quarter results, which were achieved in a period when vehicle production in our principal markets remains relatively low compared to historical levels.

In North America, we continued to experience a recovery in the auto industry. Auto sales continued to show improvement, and as a result, North American light vehicle production increased for the fourth straight quarter in Q1.

Given the rapid decline in vehicle production during the last half of 2008 and the first half of 2009, along with some of the actions taken by our customers in North America, we restructured and rightsized our capacity and reduced overheads. And we have tried to remain disciplined on the cost side, as volumes in North America are recovering. These efforts go a long way to explain the improvements of the results in North America.

I'll let Ziggy make a few comments on our European business. Ziggy?

Siegfried Wolf

I'm happy with the progress we have made over the past couple of quarters in Europe. We have been very focused on improving underperforming divisions. And as a result, our operations outside of Magna Steyr have shown improvements in profitability.

As you all know, the crisis started months later in Europe than in North America, and we are well underway to improve our margins in Europe, and we are quite sure that we will be in the same level what we had before. There is more work to do, and we are moving absolutely in the right direction.

With respect to Magna Steyr, we have said in the past that this unit is undergoing a complete turnover on its business in 2010. The three new customers and the upfront cost of new assembly programs are significant, and that has impacted our overall profitability in Europe. However, we are right now launching the Peugeot RCZ Group and the Aston Martin Rapide, and costs are declining. Magna Steyr's results should continue to improve as it begins to launch the MINI Countryman starting this summer.

We are concerned about the macroeconomic environment in Europe as well as the (buoyed) back of the vehicle scrappage programs that has been in place since 2009, which will come to an end. On the positive side, the recent weakening to the euro provides an opportunity for European OEMs to export more vehicles, particularly into the recovery in North American market. Daimler and BMW, those large markets of Magna, should benefit from this trend.

With that, I will hand over to Vince.

Vince Galifi

I would like to review our financial results for the first quarter ended March 31, 2010. Please note all figures discussed today are in U.S. dollars. In the first quarter, consolidated sales increased 54% relative to the first quarter of 2009 to $5.5 billion.

North American production sales increased 75% in the first quarter to $2.7 billion reflecting a 57% increase in vehicle production to 2.9 million units, and a 5% increase in North American content to $953. Excluding the effect of foreign exchange, our average dollar content per vehicle declined primarily as a result of unfavorable production relative to industry volumes and/or lower content on certain programs including GM's full-sized pickups and SUVs, BMW X5 and X6, Ford F-Series, the Dodge Ram, and the Mercedes R, M and GL Class.

Programs that ended production during or subsequent to the first quarter of 2010, including the Pontiac G5 and G6, and net customer price concessions subsequent to the first quarter of 2009. Partially offsetting these were new launches, favorable production relative to industry volumes, and/or increased content on certain programs, including the Ford Fusion, Edge and Flex, the Chevrolet Traverse and Cobalt, the Dodge Journey, and Chrysler-made minivans, and acquisitions completed during or subsequent to the first quarter of 2009 including several facilities from Meridian.

New launches contributing to content growth quarter-over-quarter include the Chevy Equinox and its variants, the Cadillac SRX, and the Chevy Camaro. Given what an unusual quarter Q1 2009 was in North America, perhaps a better comparison is between North American content and Q1 versus Q4 2009. Content increased 10% from $868 in the fourth quarter of 2009 to $953 in the first quarter of 2010.

The biggest driver of this increase in content was improved mix, as a number of high content vehicles outperformed the increase in overall production volume over the same period.

European production sales increased $609 million, or 53% from the comparable quarter. European vehicle production increased 33% to 3.4 million units, while European content increased 15% to $521. Key contributors to the increase in European content include, acquisitions completed during or subsequent to the first quarter of 2009, including Cadence, and the strengthening of the euro and British Pound, each against the US dollar.

The launch of new programs, including the Porsche Panamera, the Opel Astra, the Mercedes Benz E-Class, and the Audi A5 also helped content. These factors were partially offset by unfavorable production relative to industry volumes and/or lower content on certain programs in the first quarter of 2010, including the smart fortwo, the MINI Cooper, and the BMW 3-Series, programs that ended production during or subsequent to Q1 2009, and net customer price concessions subsequent to the first quarter of 2009.

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